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Global markets diverged on Wednesday as investors grew nervous about the chances of success in China-US trade talks ahead of a crucial meeting next week.
The mood remains cautious, with the rally that has characterised the start of the year stuttering owing to a slowing Chinese economy, a softer global outlook and other issues including Brexit and the US government shutdown, which shows no sign of ending soon.
US investors turned sellers on Tuesday after the Financial Times and CNBC said Washington had rejected Beijing's offer of preparatory discussions ahead of the next round of high-level negotiations.
"We are continuing to see caution in the markets on Wednesday, with reports a day earlier regarding trade talks between the US and China only aiding that," said Oanda analyst Craig Erlam.
"Reports that preparatory talks between the US and China ahead of a meeting at the end of the month had been cancelled put a slight dampener on the mood ... at a time when we're already seeing some profit taking."
And while the White House denied the reports, observers said they highlighted how fragile the talks were.
The reports also came a day after Bloomberg News said the two sides were struggling to reach agreement on the crucial matter of intellectual property, a key source of US anger.
Hopes that China and the US were on the right track have helped rally global markets in January following a torrid performance in 2018.
But data showing China's economy grew at its weakest pace in three decades added to fears it is heading for a hard landing, while Xi Jinping also showed signs of worrying about the effects of a slowdown in a speech to top provincial leaders this week.
"Investors obviously are still a little bit edgy and therefore we would expect periods of volatility to continue," said Mark Hackett, chief of investment research at Nationwide Funds Group.
"As the headlines continue to get more nerve-wracking with regards to a global slowdown and trade wars and government shutdowns, it's easy to spook investors, but we think those are temporary versus permanent."
Adding to concerns was confirmation that the US plans to seek the extradition from Canada of a top executive with Chinese telecom giant Huawei before the end of January.
The Frankfurt and London stock markets were among those that swung lower on Wednesday, losing 0.3% and 0.2% respectively, while Paris gained 0.2% in intraday trading.
Hong Kong ended flat having swung back and forth through the day, while Shanghai closed 0.1% higher and Tokyo ended slightly down.
Oil prices advanced after taking a hit Tuesday on lingering worries about the effect of a slowdown in the global economy, and particularly China, on demand.
